The Bureau of Industry and Security (BIS) released three new rules as part of its effort to ease multiple categories of export licensing requirements and expand the exceptions available to key allied and partnered countries, as well as for members of some multilateral export control regimes.

Rule 1: Allied Governments Favourable Treatment: Revisions to Certain Australia Group Controls; Revisions to Certain Crime Control and Detection Controls 

The first rule set forth by BIS amends the EAR to remove Chemical and Biological Weapons (CB) controls on specific pathogens and toxins and related genetic materials destined for Australia Group (AG) member countries. It further amends the Commerce Country Chart to remove Crime Control and Detection (CC) controls on certain items destined for Austria, Finland, Ireland, Liechtenstein, South Korea, Sweden, and Switzerland.

Pathogens and Toxins

BIS amended the EAR because it determined that AG member countries (of which there are 43) have effective export control systems that are capable of regulating dual-use exports consistent with U.S national security and non-proliferation goals. Before this rule, entries for pathogens and toxins and related genetic elements controlled under ECCNs 1C351, 1C353, 1C354, and their related technologies controlled under ECCNs 1E001, and 1E351, listed CB Column 1 (CB:1) as the reason for control and required a BIS license for all destinations, including Australia Group members. The new rule revises ECCNs 1C351, 1C353, 1C353, 1C354, 1E001, and 1E351 such that the reason for control is now CB:2 instead of CB:1, which allows Australia Group members to receive such items without a license. However, CB:1 will remain the reason for control in ECCNs 1C351.d.14 and .15 and for genetic elements of ECCN 1C353 of toxins controlled in 1C351.d.14 and .15, based on the requirements of the Chemical Weapons Convention. Similarly, ECCNs 1E001 and 1E351 will keep CB:1 for “technology” controlled by the ECCN 1C351.d.14 and .15 and the genetic elements thereof. Practically speaking, this means that an export license is no longer required for AG countries for most CB controlled pathogens and toxins and related genetic materials. In particular, this change will benefit life sciences companies, universities and research institutions that engine in collaboration involving controlled pathogens, toxins and related genetic materials, including vaccine development and gene therapies, with foreign partners in AG member states.

BIS estimates that this will eliminate approximately 1,000 license applications a year.

Crime Control

The rule also removes CC controls on for removes crime control licensing requirements for Austria, Finland, Ireland, Liechtenstein, South Korea, Sweden, and Switzerland. As these counties are members of the Global Export Controls Coalition and maintain a commitment to protecting human rights, items specified in § 742.7(a)(1) and (a)(3) will no longer require a BIS license for export and reexport. 

Rule 2: Export Administration Regulations for Missile Technology Items: 2018, 2019, and 2021 Missile Technology Control Regime Plenary Agreements; and License Exception Eligibility

The second rule  expands license exception eligibility for additional countries for certain missile technology (MT) items, excluding any countries of concern for missile technology reasons or that are subject to a U.S. arms embargo (i.e., countries specified in Country Groups D:4 or D:5). The rule also updates the current list-based controls to align with recent Missile Technology Control Regime (MTCR) control list changes.

Expanding License Exception Eligibility to Additional Countries for Missile Technology Items

The rule expands eligibility for the use of four license exceptions for MT-controlled items and adds one new authorization under an existing license exception Including the rule’s amendments, there are currently six license exceptions or portions of license exceptions that are available for items that are MT controlled for any destination, other than destinations identified under country groups D:4 or D:5 in supplement no. 1 to part 740 of the EAR:¹

• § 740.9 Temporary imports, exports, reexports, and transfers (in-country) (TMP);

• § 740.10 License Exception Servicing and replacement of parts and equipment (RPL);

• § 740.11 Governments, international organizations, international inspections under the Chemical Weapons Convention, and the International Space Station (GOV);

• § 740.13 Technology and software – unrestricted (TSU);

• § 740.15 Aircraft, vessels and spacecraft (AVS);

• § 740.16 Additional permissive reexports (APR).

More broadly, the final rule revises the general restriction on the use of license exceptions for MT-controlled items in § 740.2(a)(5). Prior to this rule, § 740.2(a)(5) restricted the use of all EAR license exceptions for MT-controlled items, except for the limited number of ECCNs it identified and for the specified license exceptions or portions of those license exceptions. But this final rule revises the general restriction to allow the use of portions of additional license exceptions, harmonizing the availability of license exceptions for MT-controlled items under the EAR with those available for other EAR items of similar sensitivity. However, the expanded license exception eligibility that this rule creates reaches only to those destinations that are not of concern for missile technology reasons (i.e., not specified under Country Group D:4) and not subject to a U.S. arms embargo. 

This rule also revises the terms and conditions of three license exceptions to account for the new eligibility of MT-controlled items. First, § 740.9(a) outlines the Temporary Imports, Exports, Reexports, and Transfers (in-country) (TMP) license exception, and this rule revises the introductory text of paragraphs (a) and (b) to specify that they do not authorize any export, reexport, or transfer (in-country) of a commodity controlled under ECCN 9A012 that is “capable of” delivering at least 500 kilograms payload to a range of at least 300 kilometers. The rule also adds an exclusion under (b)(1), which authorizes the export of certain items moving in transit through the United States, for items controlled for MT reasons when the export is to a Country Group D:4 country. The rule adds the same exclusion under (b)(2) for items imported for marketing, or for display at U.S. exhibitions or trade fairs. 

Second, § 740.11 identifies the license exception for Governments, International Organizations, International Inspections under the Chemical Weapons Convention and the International Space Station (GOV). This rule revises the GOV exception by adding a sentence at the end of the introductory text to specify that for items controlled for MT reasons, they are only eligible for transactions described in paragraph (b)(2) of the exception and not under any other paragraph.

Third, this rule revises the license exception for technology and software—unrestricted (TSU) § 740.13 by adding a sentence to the end of (d) (General Software Note: mass market software) to explicitly specify that the paragraph (d) authorization is not available for any software that is controlled for MT reasons, though it would be unlikely that any software controlled for MT reasons for be eligible for this exception anyway. 

Finally, this rule adds a new authorization to the existing license exception under § 740.15 for Aircraft, Vessels and Spacecraft (AVS) for ECCNs 7A101, 7A102, and 7A103. The rule adds a new paragraph (b)(2)(ii) that will authorize exports, reexports, and transfers (in-country) to any destination identified in Country Group A:2 and supplement no. 3 to part 746 when the commodities are for use in or for the production of civil manned aircraft. For commodities that were controlled for MT reasons, these ECCNs were the subject of some of the most common license applications that BIS reviewed, accordingly a license exception was created. 

BIS emphasizes in the promulgation of this rule that it is important to understand that although the final rule revises the general restrictions on the use of license exceptions for MT-controlled items to make it more narrowly focused, the majority of EAR license exceptions will still not be available because the terms and conditions of those license exceptions do not allow for MT-controlled items. 

Aligning List-Based Controls with Missile Technology Control Regime Changes

The MTCR is an export control arrangement between 35 countries that establishes a common list of controlled items (the Annex) and a common export control policy that member countries implement in accordance with their national export controls. The goal of the MTCR is to limit the risk of proliferation of weapons of mass destruction (including nuclear, chemical, and biological weapons) by controlling exports of goods and technologies that could make a contribution to delivery systems for such weapons. At a series of Technical Experts Meetings (TEMs) in March and November 2018, May and October 2019, and October 2021, the MTCR member countries agreed to certain changes to the MTCR Annex. This final rule revises six ECCNs under the EAR (1C111, 2A101, 2B119, 6A107, 9A101, and 9E515) to implement the MTCR changes. These changes are primarily editorial corrections that are not expected to result in any changes to the number of license applications received annually by BIS. The one exception are the changes to ECCN 1C111 which adds a new “items” paragraph to control Dimethylaminoethylazide (DMAZ) as a Hydrazine replacement fuel.  This item was added to the MTCR Annex in 2014 but was not concurrently added to the United States Munitions List (USML) or the Commerce Control List (CCL). 

Rule 3: Proposed Enhancements and Simplifications of License Exception Strategic Trade

In the third rulemaking, BIS proposes revising License Exception Strategic Trade Authorization (STA) under the EAR to encourage increased use by partner and ally countries. The original purpose of the license exception was to facilitate trade and military interoperability with US allies and partners. BIS also included multiple questions for public comment. Parties who wish to comment must do so by February 6, 2024.

Specific Goals Set Forth by the Proposed Rule

Clarify that License Exception STA is not a list-based exception

First, BIS aims to alter the introductory language in § 740.20 to clarify that License Exception STA is a transaction-based license exception rather than a list-based license exception. A list-based license exception requires reviewing the License Exceptions section in an ECCN and confirming that the ECCN includes an affirmative statement that the list-based license exception is available. License Exception STA does not appear under the License Exceptions section of any ECCN because it is not a list-based license exception, and therefore, this additional step of checking the ECCN is not required. BIS does, however, welcome comments on whether it would be more beneficial to change License Exception STA into a list-based license exception.

Specify that License Exception STA is eligible for deemed exports and deemed reexports

Second, BIS wants to clarify the introductory language in § 740.20 such that the public understands that the license exception may be used to authorize deemed exports and deemed reexports. It further aims to clarify that any license exception authorizing exports and reexports of technology also authorizes deemed exports and deemed reexports so long as the terms and conditions for a release of technology under that license exception are met. Here, BIS welcomes comments about how to most efficiently make this information clear.

Exclude deemed exports and deemed reexports from the requirement to have been listed on an approved license or other approval for "600 series" technology

Third, in § 740.20, this rule proposes adding one sentence to the end of the Note to paragraph (c)(1), to specify that the Note is not applicable to deemed exports or deemed reexports authorized under License Exception STA under § 740.20(c)(1). The current construction of the rule has led to unexpected results, which the new rule hopes to eliminate. However, BIS encourages a good compliance program for those who use License Exception STA. This involves vetting the foreign national through employment screening and non-disclosure agreements. Further, any deemed export or deemed reexport authorized through License Exception STA will need to comply with the requirements listed in paragraph (d)(4).

Simplification of limitations on use of License Exception STA

Fourth, the rule proposes changes that will enable exporters, reexporters and transferors to more quickly and consistently determine whether an item is eligible for License Exception STA for Country Group A:6 or for Country Group A:5 and A:6. To date, as the eligibility for certain ECCNs has been adjusted for License Exception STA, BIS deviated from the general construct for excluding ECCNs or certain items under ECCNs, which resulted in unnecessary complexity. Specifically, in § 740.20(b)(2) the paragraph heading would be “Items excluded from the use License Exception STA for Country Groups A:5 and A:6.” This rule proposes deleting all of paragraph (b)(2) ECCN exclusions. The exclusions would be moved into the Special Conditions for STA section of the 29 respective ECCNs, except for existing paragraph (b)(2)(i), and existing paragraph (b)(2)(iii), which would be redesignated as paragraph (b)(2)(ii). This rule also proposes the removal of paragraph (b)(2)(iv), as it has become redundant.

Further, BIS proposes adding a new Note to § 740.20(b)(2) that would provide additional context on the relationship between § 740.20(b)(2) and the Special Conditions for STA section in ECCNs. It would clarify how the two exclusion methods work together.

Remove the limitation on the use of License Exception APR for certain partner and ally countries

Lastly, this rule would narrow the scope of the License Exception Additional Permissive Reexports (ARP) restriction for destinations in Country Group A:5, so long as it is also listed in supplement no. 1 to part 740 and supplement no. 3 to part 746 of the EAR. BIS is implementing this change because these destinations have cooperated with the United States and have an effective dual-use export control system, and therefore warrant more permissive treatment to receive items under License Exception APR paragraphs (a) and (b). Moreover, the rulemaking proposes revisions to paragraph (e), such that “exports” and “in country transfer” are removed from the heading. These changes are anticipated to encourage consignees, reexporters and transferors to these destinations to be more receptive to receiving items under License Exception STA.

BIS Questions for Public Comment

BIS seeks public comments on the scope of ECCNs eligible for STA

As part of its effort to assess whether the scope of ECCNs currently eligible for STA meets the STA objectives and broader U.S. national security requirements, BIS seeks public comment on the following issues:

• What additional items that are currently not eligible for License Exception STA do you believe should have STA eligibility added for Country Group A:5 of for both Country Groups A:5 and A:6? Commentors should identify specific ECCNs and the rationale for adding STA eligibility for Country Group A:5 or both Country Groups A:5 and A:6.

• What additional items that are currently eligible for License Exception STA do you believe should have STA eligibility removed from Country Group A:5, for Country Group A:6, or for both Country Group A:5 and A:6? In this rule, the USG is including proposed revisions to the License Exception STA eligibility for items under seven ECCNs in particular.

This rulemaking proposes specific regulatory revisions to further limit STA eligibility for the following ECCNs: 1E001, 2E003, 6D002, 7D004, 9B001, 9E001, and 9E002.In addition to these questions, BIS includes two statements of clarification. First, BIS recognizes that 1E001 and 2E003 were part of a public comment period in 2021 that yielded 6 comments which were generally not supportive of new restrictions on STA eligibility. As time has passed, BIS seeks new comments, both from those 6 commenters and other parties. Second, the restrictions BIS proposes for the regulatory text of the STA Special Conditions for ECCNs 6D002, 7D004, 9B001, 9E001, and 9E002 are included to provide clarity to the public of the potential scope of such restrictions to facilitate BIS’s receipt of informed comments from the regulated public. This does not indicate BIS's regulatory intent to formally adopt these restrictions.

BIS seeks public comments on the following additional questions:

In addition to the ECCN-specific questions, the proposed rule seeks comment on the following questions:

• (1) what factors contribute to the apparent reluctance of certain exporters, reexporters, and transferors to use License Exception STA or certain consignees to receive items under License Exception STA?

• (2) What changes should be made to the EAR to encourage greater usage of License Exception STA?

• (3) What changes or clarifications could be made to the information required on the prior consignee statement required under § 740.20(d)(2) for the “600 series,” 9x515 ECCNs, and other ECCNs’ prior consignee statements to facilitate increased usage of License Exception STA?

• (4) What additional changes could be made to License Exception STA to further facilitate exports, reexports, and transfers (in-country) between and among destinations identified in both Country Group A:5 in supplement no. 1 to part 740 and supplement no. 3 to part 746?

• (5) What are the anticipated effects of requiring use of License Exception STA under the EAR when eligible, like other EAR license exceptions?

• (6) Should License Exception STA be a list-based license exception?

• (7) What type of additional BIS outreach materials or outreach activities could encourage greater usage of License Exception STA?

Next steps

Companies should continue to review their business activities and compliance procedures regularly to ensure they comply with applicable new requirements. Hogan Lovells lawyers can assist you with assessing the potential impact of these and other BIS rules on your operations.  

Please contact any of the listed Hogan Lovells lawyers for further information or assistance.

Authored by Lyric Galvin, Laurine Verwiel, Ajay Kuntamukkala, Deborah Wei, and Aleksandar Dukic.

References

1 There are also thirteen license exceptions that are not available for items that are MT controlled: § 740.3 Shipments of limited value (LVS); § 740.4 Shipments to Country Group B countries (GBS); § 740.6 Technology and software under restriction (TSR); § 740.7 Computers (APP); § 740.8 Notified Advanced Computing (NAC); § 740.12 Gift parcels and humanitarian donations (GFT); § 740.14 Baggage (BAG); § 740.17 Encryption commodities, software, and technology (ENC); § 740.18 Agricultural commodities (AGR); § 740.19 Consumer Communications Devices (CCD); § 740.20 License Exception Strategic Trade Authorization (STA); § 740.21 Support for the Cuban People (SCP); and § 740.22 Authorized Cybersecurity Exports (ACE).